Moody’s downgrades Russian Railways to Baa2 with negative outlook

MOSCOW, October 21. /TASS/. Moody's Investors Service on Tuesday downgraded the senior unsecured issuer rating of the government-related issuer (GRI) Russian Railways (RZD) Joint Stock Company and senior unsecured ratings of its outstanding debt instruments to Baa2 from Baa1, the international ratings agency reported.

Moody’s “also downgraded the senior unsecured ratings of RZD Capital PLC, which is the issuer of loan participation notes for the sole purpose of financing loans to Russian Railways, to Baa2 from Baa1.” The agency said the outlook on all ratings is negative.

“These actions follow the weakening of Russia's credit profile, as reflected by Moody's downgrade of Russia's government bond rating to Baa2 from Baa1 on 17 October 2014,” Moody’s said.

“The downgrade of Russian Railways' senior unsecured issuer rating reflects Moody's view” that first, “Russian Railways has strong linkages with the government and the company's rating remains constrained by that of the sovereign.”

The agency added that second, “Russian Railways continues to depend on the government's willingness and capacity, as reflected in the Baa2 sovereign rating, to maintain the scope of its support (including tariff indexation, subsidies, equity injections and long-term low interest-rate financing) at a level sufficient for Russian Railways to maintain its financial metrics in line with its conservative financial policy.”

Earlier, Moody’s said that the key reasons for downgrading the Russian government’s debt rating on October 17, 2014 to Baa2 from Baa1 were Russia's “increasingly subdued medium-term growth prospects, exacerbated by the prolongation of the Ukraine crisis, including through the impact of expanded international sanctions.”

The second reason, it said then, was “the gradual, but ongoing erosion of the country's foreign-exchange buffers due to capital flight, Russian borrowers' restricted international market access and low oil prices.”

Russian officials and companies came under the first batch of Western sanctions, including visa bans and asset freezes, after Russia incorporated Crimea in mid-March after a coup in Ukraine in February.

The West announced new sectoral penalties against Russia in late July over Moscow’s position on Ukrainian events, in particular, what the West claimed was Moscow’s alleged involvement in mass protests in Ukraine’s war-torn southeast.

In response, Russia imposed on August 6 a one-year ban on imports of beef, pork, poultry, fish, cheeses, fruit, vegetables and dairy products from Australia, Canada, the EU, the United States and Norway.

Russia has repeatedly dismissed Western allegations that it could in any way be involved in hostilities in the southeast of Ukraine.

Russian Railways was established in 2003. It is a natural monopoly in the sphere of cargo transportation and railroad transport infrastructure services. All company shares belong to the Russian government.